What should be news organizations’ top financial strategy? Growing advertising revenue? Growing subscriptions? Neither, say researchers at Northwestern University’s Spiegel Research Center, who believe there’s a better answer: Growing Customer Lifetime Value.
CLV is a common forecasting tool that allows businesses to calculate how much customers will be worth for the length of their relationship. The two most important things that determine the future value of a reader relationship are the amount of profit received each month and the monthly retention rate.
And when you run the numbers, the importance of boosting that retention rate becomes obvious, they say.
“Being able to move a reader to a subscriber, while important, has much less leverage and value than growing the long-term value of that subscriber,” said Tom Collinger, Spiegel’s Executive Director.
Spiegel is part of Northwestern’s Medill School of Journalism, Media, Integrated Marketing Communications and is working on the Medill Local News Initiative, a project to help sustain local news. Spiegel’s analysis of 13 terabytes of data from the Chicago Tribune, San Francisco and Indianapolis Star, released in February 2109, reached the eye-opening finding that creating reader regularity was essential for subscriber retention, and much more valuable than page views alone. Spiegel now has embarked on another major project, creating a Subscriber Engagement Index with financial backing from the Google Innovation Challenge. This index, which will be available to all news organizations that share their data, will include a calculator of Customer Lifetime Value.
Understanding and then working to grow lifetime value is a well-known goal and measure in the retail and e-commerce space.Tom Collinger, Executive Director, Spiegel Research Center
“Understanding and then working to grow lifetime value is a well-known goal and measure in the retail and e-commerce space,” said Collinger. CLV is a “far newer and less familiar goal” in American news organizations, but it’s one they should embrace as customer revenue becomes more of a priority and advertising dollars become less of one, he said.
This focus on CLV points up the need for newsrooms to improve the user experience and build customer loyalty.
“It means understanding the drivers of retention, and the causes of cancellation for all subscribers,” said Collinger. “It means calculating Customer Lifetime Value for every subscriber and improving the engagement and subscriber experience to grow it.”
Ed Malthouse, Spiegel’s Research Director, said even small changes in subscriber retention rates can have a big impact on CLV. Among the more than a dozen news outlets studied in recent years by Spiegel, the retention rate ranged from 94 to 97 percent per month. If a news outlet can bring up its rate up just a few percentage points, the cumulative financial benefit will be major, Malthouse said.
He offered this graphic to explain:
Are Ads Hurting Subscriber Retention?
Advertising is just one factor in subscribers’ engagement, but it may be an important one. Recent Spiegel research found that readers who used ad blockers were more likely to keep their subscriptions, suggesting that some types of intrusive ads may be chasing away paying customers.
“The way you have to think about advertising is, what are the advertising practices doing to the retention rates vs. how much am I making from the ads?” Malthouse said.
“My hypothesis about click-bait ads is that it’s hurting the media brand,” Malthouse said. “They are asking them to trust the news and information on that site, and then they fill it up with native ads that make me not want to trust it – ‘Go look at what the movie stars of the 1980s look like today.’ If I click on that, I regret it. Why should I trust that media site?”
But there’s scant research on how ads affect engagement, and whether “ad-free” or “ad-lite” versions of news websites offer a significantly better user experience – and a higher CLV.
If I’m paying the site a little more money to get an ad-lite version with a better user experience, what will it do to my retention rate? We need a test to really answer that.Ed Malthouse, Research Director, Spiegel Research Center
“We don’t really know yet – what is the effect of ad-lite versions on retention rates?” Malthouse said. “If I’m paying the site a little more money to get an ad-lite version with a better user experience, what will it do to my retention rate? We need a test to really answer that. CLV provides the analytical formulas to help you decide whether that was a smart move.”
To be sure, some readers welcome certain ads, and it’s likely that some types of ads are much more accepted by readers than other types. Native advertising that mimics news stories, for example, is less distracting than a takeover ad that requires the reader to spend 30 seconds hunting for the X to close it.
It’s possible that if news outlets curtailed their most intrusive ads, they could see a rise of engagement that would make their other ads more effective, Malthouse said. “There’s evidence from Medill’s Media Management Center studies that the more engaged readers are, the more effective advertising becomes, justifying higher ad rates,” he said.
Newsletters Likely to Boost Lifetime Value
In contrast to the potentially negative effect of ads on the user experience, research suggests that email newsletters can boost engagement. A Spiegel study of two news outlets found higher retention by subscribers who agreed to receive emails calling their attention to quality news content.
“The newsletter is one of those things that is going to bump you from 97 to 98,” Malthouse said. “The way someone running a newsroom should think is as follows: I’m going to need to devote a reporter to create that newsletter. What’s that worth? There are costs associated with having that reporter. Everybody who subscribes to the newsletter – let’s say they go from having 25 to 40 future payments. You can then do the math to determine whether it is a smart thing to do.’“
Purchase is not the end game of the value-nurturing funnel. A lifetime relationship is.Grzegorz Piechota, International News Media Association
CLV can reduce the guesswork and help news organizations assess the tradeoffs in a scientific way. Collinger and Malthouse believe that if news outlets had a better understanding of their own customers’ CLV, they would do much more to keep them.
A 2018 report by Grzegorz Piechota of the International News Media Association emphasized the importance of long-term customer maintenance. Two key points:
- “Retention, not acquisition, is the key to extending the digital subscription growth runway, as acquiring a new customer is up to 25 percent more expensive than retaining an existing one.”
- “Purchase is not the end game of the value-nurturing funnel. A lifetime relationship is.”
Spiegel’s New Index
Under the Subscriber Engagement Index, news organizations that share their data with Spiegel will receive a detailed, ongoing analysis of their subscribers’ consumption patterns and how they affect decisions on whether they remain as readers.
The index, expected to be unveiled in 2020, will analyze subscribers in complex and actionable ways.
“We will take a more surgical approach to addressing subscribers based on their behaviors with the media,” Collinger said. “This starts with distinctive strategies for subscriber segments and, in time, can evolve to relevant strategies designed for individuals.
One key approach will be to treat newly acquired subscribers differently from established ones.
“I think one of the most important segments will be new subscribers,” Malthouse said. “I’ve just given you my credit card and agreed to a penny a day or whatever my trial offer was. Now, you have three months to turn me into a habitual reader so when you raise the price I will want to stay with you because reading your site has become a habit in my life.”
News organizations need strategies to build long-term loyalty with the subscribers they already have. Otherwise, they’re just pouring water into a leaking bucket.Tim Franklin, Medill Senior Associate Dean and head of Medill Local News Initiative
News organizations need to tend these new subscribers with particular care, reaching out to them if they become inactive soon after signing up, Malthouse said.
The Spiegel researchers hope that their index’s inclusion of a CLV calculator will encourage news outlets to take the long view in tending their customers.
Medill Senior Associate Dean Tim Franklin said news outlets must concentrate on building customer loyalty.
“Many news organizations, understandably, have been laser focused on acquiring new digital subscribers. But what this research shows is that isn’t nearly enough, and is not even the most important thing,” Franklin said. “News organizations need strategies to build long-term loyalty with the subscribers they already have. Otherwise, they’re just pouring water into a leaking bucket.”